Is gold seeing a pause in safe-haven buying?

The U.S. Comex gold futures fell 1% on Thursday, ending at $1,669.90. During the early Asian hours on Friday, the gold futures have dipped a further 0.2%. While the gold futures dropped 1.01% this week, the S&P 500 index and the Euro Stoxx 50 index rose 0.59% and 0.49% respectively. The Dollar index touched 80 again on Thursday while ending the day at 79.949. For the week, the Dollar Index actually fell 0.11%.

Gold Ran into Resistances

The gold futures shot up to a recent high of $1,697.80 on Jan. 17 during New York hours, but are now trading 1.64% below that level. Several reasons are offered for the weakness. First, on Jan. 23, the U.S. House voted on suspending the debt ceiling until May. The Bill is expected to be passed by the Senate in late January, and approved by President Obama. Once the borrowing limit is raised, gold price will likely resume its climb due to further fiscal spending by the government. The rise in the December leading indicators in the U.S., and the higher January PMI data than the previous month in the Euro-area, China and the U.S. lead to expectations of stronger growth and higher real interest rates, therefore hampering gold prices. On Thursday, gold also fell in response to the lower U.S. initial jobless claims, which fell by 5,000 to 330,000. The gold market has been sensitive to any news suggesting an earlier-than-expected end to the Fed's quantitative easing.

Some traders believed that gold price fell because speculators liquidated their long positions when they saw that gold price could not break $1,700. The CFTC gold net non-commercial combined positions, as reported by Bloomberg, are still about 48% lower than the latest peak reached on Aug. 2, 2011, indicating the positions are not that crowded.

What We are Watching Next Week

Important data to watch will include the U.S. durable goods orders on Jan. 28, the U.S. FOMC interest rate decision and the U.S. preliminary Q4 GDP estimate on Jan. 30, Germany's January unemployment change on Jan. 31, and the Euro-17 January unemployment rate and the January U.S. non-farm payrolls on Feb. 1.